Foreign Actions

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited (“Treasury Wine”), the Full Court of the Federal Court of Australia considered a primary judge’s class closure order which broke new ground in group action practice in Australia. The Treasury Wine case is part of a growing trend in Australian securities litigation toward class proceedings similar to the U.S. model, where investors do not have to be a named plaintiff to participate in a recovery. Rather, in this case, prior to the issuer and the representative plaintiff mediating the case, investors needed to “register” by submitting their transaction data. When the case settled after mediation, those who registered could recover from the settlement fund, but those who did not register were shut out of the settlement. Registering was not without risks, however, as the mediation could have failed. Some investors may have feared that by submitting their transaction data they were exposing themselves to the defendants and potential discovery in the event the case did not settle. However, the case did settle after mediation, and those who registered were rewarded.

As discussed in this space before, Australia is quickly becoming a key venue for securities class action litigation. With the release of its decision in Money Max Int. Pty. Ltd. (Trustee) v. QBE Insurance Group Limited, the Federal Court of Australia took another step toward making Australia a class-friendly location. One issue with the current Australian “open-class” collective action scheme is that it permits some investors a free ride while others agree to reimburse a litigation funder out of any proceeds recovered as a result of the suit. Yet, without this second group of investors agreeing to the litigation funding arrangement, the suit would likely never be initiated. As a result, many class actions in Australia proceed as “closed-class” collective actions where only plaintiffs who agree to the funding arrangement are named in the suit and able to recover. In Money Max, the Federal Court of Australia – for the first time – approved a common fund application sought by the applicant. The Court ruled that, in the event the case settles or the plaintiffs obtain a favorable judgment, all class members, regardless of whether they agreed to a litigation funding arrangement, would reimburse the litigation funder out of their recovery. While the long-term implications of this decision remain to be seen, whether or not the common fund class action model catches on in Australia bears watching. Continue Reading Federal Court of Australia Approves a Common Fund Class Action Model for the First Time – No Opt-In Required

Recent developments, however, have put the continued viability of Dutch Foundation actions into question. As we wrote here, in June of 2016, a Dutch court dismissed a foundation’s claims because, in the court’s view, the foundation failed to sufficiently safeguard the interests of its members from the foundation president’s potential conflict of interest. Then, the Court of Justice of the European Union (“CJEU”) issued a decision in Universal Music International Holding BV v Schilling that limited the jurisdiction of courts in EU countries, such as the Netherlands. The Universal Music decision addressed Regulation 44/2001, under which defendants must be sued in courts of the member state where they are headquartered, or, for tort-based claims, the place where the harmful event occurred. The CJEU concluded that pure financial damage to a bank account cannot by itself give rise to jurisdiction in the member state where the bank account sits. The CJEU thus held ““It is only where the other circumstances specific to the case also contribute to attributing jurisdiction to the courts for the place where a purely financial damage occurred, that such damage could, justifiably, entitle the applicant to bring the proceedings before the courts for that place” (par. 39).

More recently, the Dutch court has applied the Universal Music case to limit the ability of a foundation to bring suit against BP p.l.c. in the Dutch courts. After settlement negotiations apparently failed, a Foundation representing the interests of BP retail shareholders filed an action against BP in Amsterdam, relating to BP’s alleged misstatement concerning its safety protocols leading up to the Deepwater Horizon oil spill and its alleged misstatement concerning the spill flow-rate. The Foundation sought recovery for investors who had invested in BP shares through a Dutch financial intermediary or account.

On June 29, 2016, the Dutch Court of East Brabant dismissed a foundation’s claims against Rabobank Group for alleged unlawful selling of interest rate swaps because it failed to meet the requirement of the Dutch Claim Code that a foundation sufficiently safeguard the interests of its members. While it is a lower court decision likely to be appealed, this dismissal depicts the increased scrutiny that foundations may face, particularly in the wake of the €1.2 billion settlement reached by the foundation in the Fortis case earlier this year. There will likely be an increase in the number of defense challenges to the ability of foundations to pursue litigation on behalf of members. Therefore, before joining a Dutch foundation, institutional investors should carefully scrutinize the foundation’s organizational documents and governance structure.

Ever since the Supreme Court issued its opinion in Morrison v. National Australia Bank, Ltd.,561 U.S. 247 (2010), courts have been making their own interpretations of what Morrison means for whether certain transactions are “domestic” and thus amenable to class-action securities claims. Judge Dean Pregerson of the U.S. District Court for the Central District of California recently weighed in with a May 20, 2016 opinion (“Op.”) dismissing all claims with prejudice in the Stoyas et al. v. Toshiba Corporation class action, No. CV 15-04194, for failure to allege that the alleged fraud involved domestic transactions. Although the opinion considers certain Japanese-law claims, the key question the Court addresses is whether Morrison allows claims to be brought based on transactions in unsponsored American Depositary Shares for non-U.S. companies.

As securities litigation becomes increasingly globalized, the Mintz Levin Institutional Investor Class Action Recovery practice is constantly monitoring and participating in jurisprudential developments in a number of countries, both alone and through collaboration with foreign counsel. For example, in Australia, where the procedure to consolidate cases is not uniform, some securities class action cases may overlap, leaving issuers in the undesirable position of having to defend against claims of misrepresentation on two fronts. This scenario recently played out in New South Wales, where the Court found an interesting and workable solution to a problem with concurrent class actions in Smith v. Australian Executor Trustees Limited; and Creighton v. Australian Executor Trustees Limited.

MINTZ LEVIN’S CLASS ACTION PRACTICE

Class actions are high-stakes, time-consuming, and costly, and they can present a substantial risk to the livelihood of your business. That’s why it’s critical to have defense counsel knowledgeable about and experienced in the specialized issues involved in these actions. Our national team has won landmark rulings and served as counsel in some of the largest multistate and stand-alone class actions. We combine substantive industry knowledge with procedural experience in class action defense, and have successfully defeated dozens of class certification motions.Read More